Hong Kong remains one of the world’s hottest property markets, with sales maintaining a healthy pace despite double-digit annual price growth.
By Romesh Navaratnarajah
Land scarcity in Hong Kong has driven developers to build taller buildings, contributing to the city having one of the world’s most beautiful skylines. However, the lack of space also means land costs are extremely high, making it one of the most expensive places to buy real estate.
According to Knight Frank’s Global House Price Index, prices in Hong Kong surged a whopping 16.7 percent in the third quarter of 2015 from a year ago. The report noted that it was one of only five countries in the world to record double-digit annual price growth.
Apartments of the rich and famous
The luxury property market, in particular, has seen prices rise to dizzying heights. Just last month, it was reported that a 5,444 sq ft unit at the ultra-posh Opus Hong Kong apartment block on Victoria Peak sold for HK$509.6 million (S$93.2 million), earning it the title of most expensive apartment in Asia.
In June this year, a duplex in the same building was purchased for HK$95,971 psf (S$17,555 psf), making it the most expensive unit on a psf basis.
The sky-high prices have trickled down to lower segments of the market, but some property analysts say price growth has been decelerating since 2010 when the first property cooling measure, the Special Stamp Duty, was introduced.
Supply boom amid steady sales
Meanwhile, home sales are performing considerably better than expected. “(There were) 49,113 residential transactions recorded during the first 10 months of 2015, of which 6,390 involved luxury units worth HK$10 million (S$1.8 million) and above,” said David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank.
“We expect the total volume to reach about 60,000 units in 2015, down six percent from the 2014 total, mainly due to a slow secondary sales market,” he told PropertyGuru.
The high demand for homes is propelling the Hong Kong government’s initiative to increase housing supply, with the number of completed mass market residential units rising from 8,254 units in 2013 to 15,719 units last year, noted Ji. He expects the annual average supply to increase to about 20,000 units a year in the coming years, although luxury residential supply will be more limited.
Asian investors, especially Chinese buyers flush with cash, seem to be driving home sales on the island.
“Chinese investors prefer Hong Kong properties partly because of their close proximity. They are veteran investors who are familiar with the market.
“Hong Kong is also preferred by Asian investors for its advanced and simple tax and law systems, low tax rates, stable economic and political conditions, and abundant supply of quality units. In addition, the Hong Kong dollar’s peg to the US dollar provides a certain degree of stability in the investment market,” said Ji.
Economic optimism
Confidence in the economy is high, with GDP growth hitting 2.3 percent for the third quarter of 2015. This year, Hong Kong’s economy is expected to expand between two and three percent, after registering growth rates of 2.3 percent in 2014, 2.9 percent in 2013 and 1.6 percent in 2012, revealed Global Property Guide.
In addition, unemployment stayed low at 3.3 percent in the August to October period, while the inflation rate remained healthy at 2.4 percent in October 2015, Ji noted.
For Singaporeans who wish to enter the market, he explained that the three big local banks – DBS, OCBC and UOB – don’t provide loans for Hong Kong properties, although international loan application in Singapore is pretty straightforward if the applicant meets the Total Debt Servicing Ratio (TDSR) requirement. “The way it works is you fill up an application form and provide documents that show proof of income.”
What to buy and where
So what should prospective investors be looking at? Ji recommends that buyers focus on new residential projects due to their abundant supply, high quality and competitive prices comparable with secondary units. In addition, many luxury apartments are sought after due to their greater resilience and growth potential resulting from their limited supply and prestigious status, he said, adding that properties located on the Peak, Island South and the Mid-Levels would make good buys.
Meanwhile, Ji forecasts a mixed bag for the rental market. “With the slower expansion of multinational corporations, luxury residential leasing has become slower, but mass residential leasing remains stable with consumers who cannot afford high house prices or are waiting for prices to drop along with the potential increase in interest rates.
“The increasing residential supply has been suppressing rental growth. Luxury and mass residential yields remained low at 2.3 percent and 2.7 percent in September 2015.”
CITY FAST FACTS
(HONG KONG)
Population: 7.3 million
Total area: 1,104 sq km
Currency: Hong Kong dollar
GDP per capita: US$34,222 (2014)
GDP growth: 2.3 percent (Q3 2015)
Future transport: Completion of Hong Kong-Zhuhai-Macau Bridge by end-2017
Home prices: Up 16.7 percent from Q3 2014
Distance from Singapore: 2,569 km
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